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edwin 10:59:58 am on January 28, 2012 | 0 | # |
Tags: finance, loans, personal finance, taxes, wealth building

When you finally decide it is time to prepare your taxes, the first question is whether you should itemize your deductions or take the standard deduction provided by the IRS.

Choices, Choices¦

Tax deductions are actually a very simple part of the tax reporting system. If you prepare your own taxes, then you know this isn’t true. Tax forms are difficult to fill out. Ever helpful, the IRS gives you an option of just taking a standard deduction instead of itemizing your deductions. What do you think is the right thing to do?

Standard deduction is easiest because it does not need calculations or supporting documentation. You just determine your adjusted gross income and submit the amount for your classification. The amount would differ, depending on whether you are filing as single, married, older than 65, or have children.

Many people would not even consider the idea of taking the standard deduction. As with all tax issues, deciding whether to take the standard deduction isn’t so easy. This is a good choice for those people with simple financial lives. This is your best choice if you make about $45,000 as an employee, rent a house, and don’t have any major medical bills or losses. But then, you can never be sure until you try itemizing your deductions.

Itemizing your deductions is really what it sounds like. You literally go through your records and categorize every possible deduction. These deductions are then subtracted from your adjusted gross income to get a final figure from which tax is determined using the tax tables. Itemizing is the way to go if you have significant tax deductions or tax credits in your financial life. You could itemize it if you own a home. In general, you would want to itemize if you have your own home, significant medical bills, tax credit, or suffered a major loss. Of course, there are many other situations that are ideal for itemizing.

If you have a simple financial situation, claiming the standard deduction may be the answer. For people with complex financial lives, go with itemizing.

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edwin 05:59:45 pm on January 26, 2012 | 0 | # |
Tags: banking, credit, finance, loans, personal finance, taxes

It is not easy for the average rental property owner to prepare tax returns for income derived from real estate during the tax seasons.

Fortunately for the 15 million people who own rental properties in the U.S., there are ways to make tax season a little more manageable.

They should have a file of all transactions during the taxable year. The file will be a ready reference when preparing the tax returns. Keep a separate file for every property so that you won’t have to sort through the voluminous records at the end of the year. Each property in turn must have different files for mortgage payments, real estate taxes, insurance expenses and utility bills.

Keep good rental payment records. Your file should contain all information regarding the rental payments including dates, reference numbers and amounts. If you don’t keep a proper record, you will have a difficult task sorting out things during tax preparation time.

Your records should identify which payments are for which properties. You can record this with your bank deposits in your checkbook or spreadsheet or rental property software.

There are now available rental property software that is capable of keeping an accurate record for 10 properties and 25 separate units. It makes it easier to file taxes and manage rental property income and expenses. At the end of the year, you will have ready figures for Schedule E of your tax documents. The software will keep your record up-to-date and all you have to do is fill up the form with data from a print out copy, or alternatively send the data to TurboTax or similar software.

Separate security deposits from rent payments. Security deposits are not treated as income and must be kept apart because the amounts will be returned to the lessees at the end of the lease period.

Mark your expenses for identification. There are expenses that would be difficult to categorize for tax purposes. When you replace the faucet in the bathroom, is that considered a repair or a capital improvement? It makes sense to differentiate the repairs from capital improvement because the former is deductible for the whole amount while the latter will be deducted on an annual basis. You may have a problem with the classification so it would be advisable to leave the matter to your accountant. Keep them in a separate place or flag them in your expense journal.

There is also the matter of mileage deduction. As a rental property owner, you incur auto and travel expenses in the conduct of you rental business. The allowable deduction is 45 cents per mile so you must be meticulous in your record keeping to fully avail of this benefit. If you have problems with your record keeping, use MapQuest or similar devices as ready instrument for your business related travels.

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edwin 03:29:27 pm on January 9, 2012 | 0 | # |
Tags: banking, finance, investing, loans, tax deductions, taxes

Interest paid on mortgage is a tax deductible figure — this is common knowledge for most, if not all homeowners. But they don’t understand how it really works.

What you would need to do in order to estimate how much of a tax break you can get for being a homeowner and paying your mortgage would be simple — you must have a clear understanding of your tax deductions.

First, you need to know what is deductible. In many cases, homeowners are allowed to deduct the amount of mortgage interest paid from their income. Another deductible figure for a homeowner would be the total amount of the real estate property taxes levied on the home.

For example, we have a homeowner and a renter who both make the same annual income of $60,000.

The renter pays $1,000 a month in rent and receives no tax benefits for renting a home.

On the other hand, the second individual, the homeowner, holds a mortgage of $140,000, at a 7% fixed interest rate. His total mortgage payment is $1,100 a month. He pays $1,500 worth real estate property tax. For the present fiscal year, John paid a grand total of $9,755 on his mortgage interest — pretty close to an even ten thousand.

This is where taxes will play a very big part in the equation. Even a fifth-grader can tell you that the owner can deduct $11,255 from his annual income before tax liability is calculated. The renter cannot deduct anything from his income, thus is charged a good eleven Gs more than the owner would be when taxes are calculated.

We wouldn’t want to flummox you with complicated calculations, so let’s assume both men are in the tax bracket of 25%. The taxman will have to collect $15,000 worth taxes from Steve, since after all, his annual income is $60,000. As for John the lucky homeowner, his taxable income would now be $48,745 once you take away the aforementioned $11,255. Therefore, he would only owe $12,186 worth of income tax for the fiscal year. The owner saves $2,814 in taxes each year. And per month, that redounds to $234 worth of savings.

So as you can see, John’s monthly payment after taxes would be, in all actuality, just $866. As for Steve, he would still pay eleven hundred dollars. And when everything is said and done, John still is able to keep his house.

There are many variables that can affect the amount of mortgage interest you pay in any given year. But, you could often say that you can take 20% off of your mortgage payment to get a rough idea of the tax benefits of owning.

Ask your lender. A good loan officer should be able to give you a reasonable estimate of your mortgage interest and tax payments over a given period of time. In addition, most lenders should furnish you with a schedule upon closing.

However, the person you would want to ask when it comes to ascertaining tax deductions or your specific tax bracket would be your tax lawyer or CPA. Your loan officer can’t really help you with tax details.

In summation, you can save a lot of money if you own a home rather than rent one. So if you’ve had it with paying rent and feeling as if you’re running in place, you might want to run to those savings and own a home instead of renting one.

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Latest Updates: loans RSS

edwin 10:59:58 am on January 28, 2012 | 0 | # | Tags: finance, loans, personal finance, taxes, wealth building

edwin 05:59:45 pm on January 26, 2012 | 0 | # | Tags: banking, credit, finance, loans, personal finance, taxes

edwin 03:29:27 pm on January 9, 2012 | 0 | # | Tags: banking, finance, investing, loans, tax deductions, taxes

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edwin 10:59:58 am on January 28, 2012 | 0 | # |
Tags: finance, loans, personal finance, taxes, wealth building

edwin 05:59:45 pm on January 26, 2012 | 0 | # |
Tags: banking, credit, finance, loans, personal finance, taxes

edwin 03:29:27 pm on January 9, 2012 | 0 | # |
Tags: banking, finance, investing, loans, tax deductions, taxes